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How much more than high-quality corporate bonds do junk bonds generally earn?
AAbout a quarter of a percent more
BAbout half of one percent more
CAbout 3 percent or more
DAbout 30 percent or more
Answer & Solution
Correct answer: C. About 3 percent or more
1. High-yield or junk bonds are high-risk, high-return bonds.
2. They are often used by companies whose credit characteristics would not otherwise let them into the debt markets.
3. They generally earn 3 percent or more above the returns on high-quality corporate bonds.
4. That premium is the price investors demand for accepting the extra risk of default.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.6 Securities Markets_
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